Management Accounting

Question 1

What is Financial Accounting?

Answer 1

• Bookkeeping and preparation of the statutory accounts
• Based on past information
• To meet external users’ needs and supply information
• Governed by Companies Act of 2006; this reduces flexibility

Question 2

What is Management Accounting?

Answer 2

• Timely, frequent and confidential
• Tailored and Suited to the context, for managers to make decisions
• Always internal; no need to publish the information
• 3 parts of a manager role (planning, control and decision making) are exaggerated by Management Accounting

Question 3

What does Management accounting help for managers to do?

Answer 3

• Formulate Policy
• Plan and Control
• Make Decisions
• Helps perfomance
• Help resource efficiency usage
• Safeguard Assets

Question 4

What are some problems can be solved by Management Accounting?

Answer 4

• How many more units of a product
• Pricing
• How to manufacture products
• Priorities for expenditure
• Allocation of scarce resources
• Discontinuation of products

Question 5

What is Short-Term Decision-Making? What must be talked about when considering this facet?

Answer 5

• Day-to-day, operational running of the business
• Vital to only consider relevant factors, the things change in the short run

Question 6

How can Revenue Expenditure be broken down?

Answer 6

• Behaviour (Variable/Fixed)
• Function (Direct/Indirect)
• In the short run, costs are classified by behaviour, and changes in activity

Question 7

What is the difference between Fixed and Variable Costs?

Answer 7

• Variable Costs= Costs that change in proportion to levels of activity
• Fixed Costs= Costs that remain the same, regardless of output

Question 8

What is Contribution Analysis? Referring to VC and FC, what goods should be produced?

Answer 8

• If Sales.Rev > VC, each product will make contributions to FC
• If FC are covered, you get profit
• Enables businesses to choose most profitable goods/services in the SR

Question 9

What are the 3 formulas needed to know for Contribution Analysis?

Answer 9

• Contribution / Unit
  = Product Sale Price - VC
• Total Contribution
  = (Contribution / Unit) X No. of Units Sold
• Contribution Margin
  = (Total Contribution / Total Rev) x 100%

Question 10

What is the relationship between Contribution and FC?

Answer 10

• If Contribution > FC - Profit
• If Contribution < FC - Loss
• In the SR, anything making a positive contribution should be produced

Question 11

What is CVP Analysis? Why would you use it?

Answer 11

• Study of the relationship between costs, volumes and profits at varying activity levels
• Once selling prices and cost structures are established, you can manipulate data to see trends
• If prices fall by 5%, sales would rise by 15%- is it worth it?

Question 12

What is the Break-Even Point? How do you calculate it?

Answer 12

• Point at which neither profit nor loss is made
• Sales are sufficient to cover Total Costs
• Units = TFC / (Contribution/Unit)

Question 13

What is the Target Profit? How do you calculate it?

Answer 13

• How many sales to make £x profit
• Units = (FC + Target Profit) / (Contribution/Unit)

Question 14

What is the Margin of Safety? How do you calculate it?

Answer 14

• How much is the profit above the break-even price
• Units = Actual - Break-Even
• Percentage = (Actual - Break-Even) / Actual X 100